(Bloomberg) -- Federal Reserve Governor Adriana Kugler said it’s likely appropriate for the US central bank to hold interest rates steady for “some time,” pointing to upside risks to inflation.
“Given the recent increase in inflation expectations and the key inflation categories that have not shown progress toward our 2% target, it could be appropriate to continue holding the policy rate at its current level for some time,” Kugler said Friday in prepared remarks for a speech in Portugal.
Kugler, who has previously said that the Fed has “some way” to go in bringing inflation to its goal, pointed to several measures of rising inflation expectations.
A University of Michigan report showed consumers now see prices climbing by 3.5% over the next five to 10 years, the highest rate since 1995. Policymakers see well-anchored inflation expectations as a key component in keeping prices stable.
Fed officials are widely expected to leave borrowing costs unchanged when they next meet March 18-19. Following a full percentage point of cuts late last year, Kugler and many of her colleagues have said they’re looking for meaningful evidence of cooling inflation before reducing rates again.
Kugler, who noted inflation has largely moved sideways since the second half of last year, said an increase in both non-market-based core services and goods inflation are putting upward pressure on prices.
“This rise is not a welcome development because, over the long term, goods price deflation has offset price increases in other categories and kept a lid on overall inflation,” Kugler said.
She also noted that there’s “considerable uncertainty” about the inflationary impacts of new policies. President Donald Trump’s tariffs against America’s largest trading partners are rapidly changing, making it particularly challenging for officials to evaluate how they will impact the economy.
“First things first, we need to worry potentially about the impact of prices and then we would need to see what happens with economic activity as well,” Kugler said in a moderated discussion following her remarks. She added that there has already been some impact of the increased uncertainty in the data, pointing to heightened inflation expectations and businesses reporting higher input costs.
Labor Market
The Fed governor said a report released earlier Friday showed the labor market remains well balanced.
US employers added a steady 151,000 jobs in February. The unemployment rate nudged up to 4.1% amid a drop in labor force participation, but both remain within their recent range, Kugler said.
“Labor supply and demand in the United States have been roughly in balance, and the unemployment rate has been running close to the estimates of FOMC participants for its longer-run rate, which is consistent with the committee’s maximum-employment goal,” Kugler said, referring to the rate-setting Federal Open Market Committee.
(Updates with additional comments from a moderated conversation in the ninth paragraph.)